As promised when the Postal Service filed for a 1.7% CPI-capped rate increase on January 13, the Postal Regulatory Commission (PRC) expedited its deliberations, and on February 16 issued an order largely approving the new rates for market dominant products. The rate increases will go into effect on April 17. The increase for Periodicals Outside County is 1.8% - balanced by a 1.1% increase for In-Country Periodicals - with the increase for finely sorted carrier route pieces slightly higher. While MPA disagreed with the Commission’s calculation of the cap, which ignored a period of deflation since the last rate increase that should have reduced the allowable increase slightly, MPA did not object to the Commission approving the rates as proposed.

In an important development, while the CPI rate increase was being reviewed, the Commission was also conducting its Annual Compliance Determination for the Postal Service’s 2010 fiscal year as required by the Postal Accountability and Enhancement Act (PAEA). In a report issued on March 29, for the first time ever, the Commission found that the rates for a market dominant product – Standard Mail Flats – did not comply with the statute. The PRC directed the Postal Service to change the rates in Standard Mail as “promptly as practicable” to remedy an intra-class cross subsidy between letters and flats. For Periodicals, however, the Commission found rates to be compliant with the law, agreeing with arguments made by MPA that the failure of Periodicals to cover the class’ measured costs does not compel a finding of non-compliance. For the first time, the PRC directly addressed the hierarchy of requirements contained in PAEA and articulated a position long advocated by MPA that the objectives and factors of the Act – including the cost coverage factor – “operate within the context of the price cap; they are not on an equal footing with it.” Also agreeing with MPA that the solution to the Periodicals class cost-coverage shortfall is to reduce costs, not raise rates, the Commission found that “management has not yet fully brought to bear efficiency enhancements, network adjustments, and related changes which could alter the attributable cost picture for Periodicals.”

Just a few days prior to issuing its Annual Compliance Determination, the Commission issued its long-awaited Advisory Opinion on Elimination of Saturday Delivery. While some expected the Commission to come out against 5-day delivery, the Commission as a whole stopped short of taking a position on the advisability of eliminating Saturday delivery. However, the Commission did issue several findings contrary to the Postal Service’s position, in particular calculating an annual net savings estimate of $1.7 billion versus the Postal Service’s savings estimate of $3.1 billion and an estimate of net revenue losses dues to lost volume of $600 million versus the Postal Service’s revenue loss estimate of $200 million. The issue of 5-day delivery remains before Congress, where a provision allowing it is included in legislation being sponsored by Senator Tom Carper (D-DE).

With regard to potential postal reform legislation, on February 1 MPA filed comments with the PRC as part of the Commission’s five-year review of the PAEA. MPA supported changes to PAEA to adjust the funding of the Postal Service’s pension and retiree health benefits. MPA also supported legislative changes to address workforce issues and streamline the Postal Service’s infrastructure. On the other hand, MPA strongly opposed any legislative changes that would weaken the price cap, the incentives it provides USPS to operate efficiently, and the predictability the cap offers to publishers and other mailers.

On the legal front, despite the fact that the 2011 CPI-capped rate increase is about to go into effect, the Postal Service’s appeal of its loss in the 2010 exigency case is still pending before the U.S. Court of Appeals of the District of Columbia. Oral arguments in the case were heard on March 15, with lawyers representing the Postal Service and the Justice Department representing the PRC each having 15 minutes to present their case. MPA and the Affordable Mail Alliance (the MPA – led mailing industry coalition) had previously filed a strong brief with the court supporting the PRC’s decision to deny the Postal Service’s request for an exigent increase. The panel of three judges is expected to issue a decision in the next month or two.